Thursday, April 25, 2013

Austerity Budgets and Gasoline-Pump Stimulus

In another week, gasoline prices may be down 20 percent from their recent peak. The sharp decline is caused largely by austerity budgets. With fewer people working, fewer people are driving to work, and the effect on gasoline consumption is large enough to reduce gasoline and oil prices. The stimulus effect of less expensive gasoline is larger than that of the recently expired payroll tax cuts but not large enough to counter the effects of federal spending cuts. In a way, this effect is ironic. Looking at it another way, it goes to show how little impact the current government spending plans have on the economy. If the government were to push hard for full employment, gasoline prices near $5 a gallon would represent a major economic obstacle.